Participating (Par) Products in Insurance

Indian life insurers are rebalancing their product mix towards participating (par) insurance products, moving away from unit-linked (ULIPs) and aggressively priced non-participating (non-par) products. This comes in response to volatile equity markets, falling interest rates, and pricing competition, which have increased balance sheet risks.

What are Par Products?

• Par Products (Participating Policies) are life insurance policies where the policyholder is eligible to receive a share in the profits (surplus) of the insurer, in the form of bonuses or dividends.
• These are called “with-profit policies”.
• Surplus depends on investment returns, expenses, and claims experience.
• Unlike non-par products (which offer fixed guaranteed returns but expose insurers to risk in low-rate environments) or ULIPs (where the policyholder bears full market risk), par products balance security with growth potential.

Key Features

• Profit Sharing
  • Policyholders share in the insurer’s distributable surplus, usually declared annually.
  • Bonuses are not guaranteed and depend on the insurer’s financial performance.
• Types of Bonuses
  • Reversionary Bonus: Declared annually, added to the sum assured.
  • Cash Bonus: Paid out immediately.
  • Terminal Bonus: Paid at maturity or death.
• Premium
  • Slightly higher than non-par products, since part of the premium funds the bonus pool.
• Returns
  • Combines guaranteed benefits (like sum assured) with non-guaranteed bonuses.
  • Provides long-term savings + protection.

BS